Which of the following statements is CORRECT? a. The capital structure that maxi

Question

Which of the following statements is CORRECT?

a. The capital structure that maximizes the stock price is also the capital structure that maximizes earnings per share.

b. The capital structure that maximizes the stock price is also the capital structure that maximizes the firm's times interest earned (TIE) ratio.

c. Increasing a company's debt ratio will typically reduce the marginal costs of both debt and equity financing; however, this still may raise the company's WACC.

d. If Congress were to pass legislation that increases the personal tax rate but decreases the corporate tax rate, this would encourage companies to increase their debt ratios.

e. The capital structure that maximizes the stock price is also the capital structure that minimizes the weighted average cost of capital (WACC).

Explanation / Answer

Option E is correct since the WACC is minimum then the stock price will maximize since the cost has came down

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